How a Family Business Management programme can help transform a business into a modern sustainable enterprise
Family businesses account for 85% of India’s businesses and contribute to a significant portion of the nation’s employment and domestic output. However, the survival rate of these businesses to the third generation is around 13% and dips further to 4% beyond that. Interestingly, this is not unique to India. A Cornell University study shows almost the exact rates for family businesses in the US.
Family Business Management programmes came from the realisation that, while they urgently needed succession planning and modernisation, any potential solution had to work out within their unique structure and requirements. As a training ground for future proprietors, this programme is distinct from a traditional MBA. Instead of focusing on developing professionals, they are run from a business stakeholder’s perspective. The objective is to impart a holistic transformation so that they can help transition their family businesses into modern, sustainable, enterprises.
When it comes to family enterprises, the two main challenges are governance and succession planning. Based on multi-generational ownership, they are characterised by the family’s absolute control of the decision-making process. Many of the older, established family businesses can often have a complex management system influenced by the dynamic of the owner-family. While the bedrock of history, long-term commitment, and familial relationships have the potential to create extremely resilient enterprises, in reality, these factors can also cause their downfall.
Family conflicts, refusal to adopt modern practices, lack of succession planning, and accelerating competition are just some of the factors that threaten their long-term survival. In India, they are often helmed by a powerful patriarch and have an entrenched self-structured framework that can be difficult to break. But, with the advent of globalisation, more such businesses are now expanding across borders, while facing intense competition in their own domestic markets. This has created an urgent need for new leaders who can transform these businesses into modern enterprises.
A Family Business Management programme uses unique methods to make students aware of the importance of their family’s business, their role as future entrepreneurs, and challenges that they may encounter. This can be implemented through multiple measures, such as tapping the alumni network, to provide valuable insight. Interactions with others who have faced challenges in transitioning offer an invaluable glimpse into the role of family members, the challenges of introducing changes and balancing relationships and the business.
Students are also groomed in various aspects of business etiquette and social norms to help them understand cultural nuances when dealing with international clients and overseas opportunities.
In a globalised world where new start-ups and international companies have emerged to threaten the long-held position of legacy players, family concerns must transform and renew their ecosystem. It requires a restructuring of entrenched organisational structures through innovation, market expansion across international borders, and an urgent inclusion of modern management practices.
The writer is Director, Pravin Dalal Centre for Entrepreneurship & Family Business Management, NMIMS Deemed-to-be-University